Pacific Indemnity Company v. Deming

United States Court of Appeals
For the First Circuit
No. 15-2386
PACIFIC INDEMNITY COMPANY,
Plaintiff, Appellant,
v.
JOHN DEMING,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Leo T. Sorokin, U.S. District Judge]
Before
Torruella, Lynch, and Barron,
Circuit Judges.
Daniel Q. Harrington, with whom Cozen O'Connor was on brief,
for appellant.
Joseph M. Noone, with whom Julie M. Brady and Avery Dooley &
Noone LLP were on brief, for appellee.
July 5, 2016
LYNCH, Circuit Judge. In this Massachusetts diversity
case, plaintiff Pacific Indemnity Company ("Pacific") seeks to
recover damages from John Deming as a result of damages Deming
caused to a condominium insured by Pacific. Deming, a tenant, not
an owner, of Unit 1801 at 1 Huntington Avenue in Boston,
Massachusetts, caused flooding that damaged Unit 1601 in that
building. Pacific, which insured Unit 1601, paid Unit 1601's
owners $351,159.01 as a result of the incident and, as Unit 1601's
subrogee, sought to recover damages in this amount as well as pre-
judgment interest and costs from Deming.
The district court, on cross-motions for summary
judgment, granted judgment in favor of Deming and dismissed the
case. Pac. Indem. Co. v. Deming, 140 F. Supp. 3d 152, 162 (D.
Mass. 2015). The district court concluded that Pacific's rights
to subrogation were waived based on a clause in the bylaws of 1
Huntington Avenue's condominium trust ("Bylaws") that unit owners
"shall carry insurance," and that "all such policies shall contain
waivers of subrogation." Id. at 156–61.
We disagree. We think the best reading of the plain
language of the Bylaws, Master Deed, and Declaration of Trust
(collectively "condominium documents"), is that the required
waivers of subrogation do not apply to tenants. However, in any
event, Deming presented no evidence that Unit 1601's owners
actually waived their insurer's subrogation rights against
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tenants. And so, even if the Bylaws did require unit owners to
purchase insurance that contains waivers of subrogation as to
claims against tenants, Pacific can pursue its claims against
Deming. We reverse the district court's order and remand.
I.
The parties have stipulated to the following facts: In
2010, Deming rented Unit 1801 at 1 Huntington Avenue in Boston
under a lease with that unit's owner. On May 27, 2013, he fell
asleep after turning on the bathtub faucets in the master bathroom.
The water from the bathtub overflowed and leaked into the
condominium units below, causing considerable damage. Pacific,
which insured Unit 1601, paid $351,159.01 to that unit's owners as
a result of the incident. The parties stipulate that Deming was
negligent in turning on the bathtub faucets and then falling asleep
while they were running.
On August 4, 2014, Pacific brought a diversity action in
the Massachusetts federal district court seeking to recover the
amount it had paid to the owners of Unit 1601.1 Pacific pled that
under its policy,2 "and otherwise by operation of law, Pacific is
1 The complaint was originally brought against Tabitha
Deming, but it was amended on December 19, 2014, to replace Tabitha
with John Deming.
2 Pacific Indemnity's insurance policy contained a section
called "Transfer of rights," which stated:
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duly subrogated to [Unit 1601 owners'] rights against Deming for
the damages."
Deming filed an answer on January 5, 2015, demanding a
jury trial and raising several affirmative defenses. On June 18,
2015, Deming filed a motion for summary judgment, arguing, inter
alia, that "[t]he waiver of subrogation contained in the
plaintiff's insurance policy is enforceable and prohibits the
plaintiff's claims against the defendant."
Deming, in support of his motion for summary judgment,
took the position that "the obligation to secure insurance policies
with such waivers is a requirement of the condominium association"
and pointed to the Declaration of Trust of the condominium
association, Trinity Place Condominium. The Declaration of Trust
provided in Paragraph 3.E of its Bylaws:
Each Unit Owner shall carry insurance at his
own expense for his own benefit insuring,
inter alia, his carpeting, wallcoverings other
than paint, drapes and other window
treatments, furniture, furnishings and other
personal property owned by the Unit Owner, and
personal liability, and loss assessment
coverage, provided that all such policies
shall contain waivers of subrogation, and
All of your rights of recovery will become our
rights to the extent of any payment we make
under this policy. A covered person will do
everything necessary to secure such rights;
and do nothing after a loss to prejudice such
rights. However, you may waive any rights of
recovery from another person or organization
for a covered loss in writing before the loss
occurs.
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further provided, that the liability of the
carriers issuing insurance obtained by the
Trustees shall not be affected or diminished
by reason of any such additional insurance
carried by a Unit Owner.
Deming argued that "[b]y agreeing to the requirements of the
condominium association, Pacific's insured purchased an insurance
policy that permitted waiving the right of subrogation."
On July 8, 2015, Pacific opposed Deming's motion for
summary judgment and filed a cross-motion for summary judgment.
It argued, inter alia, that "[b]ecause defendant, who admits that
he is a mere tenant of a Unit Owner of the Trinity Place
Condominium . . . cannot establish that there is any contractual
impediment to plaintiff's pursuit of this subrogation claim
against him, plaintiff is entitled to judgment against defendant."
Pacific claimed that its policy language, which provided that the
insured "may waive any rights of recovery from another person or
organization for a covered loss in writing before the loss occurs,"
was not "self-effectuating" but rather "merely authorized
plaintiff's insureds/subrogors to enter into separate agreements
which waive subrogation against particular 'persons' or
'organizations.'" Pacific said that Deming "can point to no
document indicating that he is such a 'person' who received a pre-
loss waiver." Pacific maintained that "the only possibly pertinent
language would have to be that contained in Section 3E of the By-
Laws," which Pacific contended could not be interpreted to apply
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to tenants. Deming opposed the cross-motion on July 29, 2015, and
Pacific replied on August 4, 2015.3
The district court entered a memorandum and order on
October 16, 2015, in which it allowed Deming's motion for summary
judgment and denied Pacific's cross-motion. Pac. Indem. Co., 140
F. Supp. 3d at 154. The district court noted that Trinity Place's
Bylaws required unit owners to obtain an insurance policy that
"shall" contain a waiver of subrogation and concluded that this
provision applies to tenants. Id. at 158–60. It held, inter alia,
(1) that the Bylaws in the case were covenants that ran with the
land, id. at 158, and so "Deming is both bound by and benefits
from the waiver of subrogation provision because that provision is
one that runs with the land," id. at 159; (2) that "the plain
meaning of the Bylaws subjects Deming to the insurance and
subrogation waiver imposed on Unit Owners," id.; and (3) that
"allowing Pacific to recover from another Unit Owner (or in this
case a tenant), because its insured breached his or [her]
obligation to obtain insurance containing a waiver of subrogation,
would frustrate the clear intent of the condominium By-laws and
3 The district court then issued an electronic order on
September 3, 2015, saying that "[t]he Master Deed states certain
provisions 'run with the land,'" and allowing the parties to file
supplemental memoranda "addressing the significance, if any, of
this language to [their] Motion[s]." The parties did file such
supplemental memoranda.
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allow Pacific to benefit from its insured's breach, an untenable
result," id. at 161. This appeal followed.
II.
A. Standard of Review
Generally, we review orders granting summary judgment de
novo. Tang v. Citizens Bank, N.A., No. 15-2003, 2016 WL 2946379,
at *4 (1st Cir. May 19, 2016). Here, Deming contends that this
should be considered review of a "case stated," and as such, we
should review for clear error. See United Paperworkers Int'l
Union, Local 14, AFL-CIO-CLC v. Int'l Paper Co., 64 F.3d 28, 31
(1st Cir. 1995). Deming is incorrect.
"[U]nder our precedent, in certain, somewhat unusual
cases, [the plenary summary judgment] standard does not apply. In
a nonjury case, when the basic dispute between the parties concerns
only the factual inferences that one might draw from the more basic
facts to which the parties have agreed, and where neither party
has sought to introduce additional factual evidence or asked to
present witnesses, the parties are, in effect, submitting their
dispute to the court as a 'case stated.'" Id. In such cases, the
district court "may engage in a certain amount of factfinding,
including the drawing of inferences," and we review these factual
inferences for clear error. Id.The case stated doctrine does not apply here. As an
initial matter, while "the actual meaning of a contractual
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provision which can reasonably accommodate two or more
interpretations should be left to the jury[,] . . . the question
whether a provision can reasonably support a proffered
interpretation is a legal one, to be decided by the court."4 Fleet
Nat'l Bank v. Anchor Media Television, Inc., 45 F.3d 546, 556 (1st
Cir. 1995). We review legal conclusions de novo. United
Paperworkers, 64 F.3d at 32. And to the extent Deming argues that
"Pacific seeks to overturn the factual inferences drawn by the
District Court," this argument fails.
First, this is not a "non-jury" case. See García-Ayala
v. Lederle Parenterals, Inc., 212 F.3d 638, 644 (1st Cir. 2000);
United Paperworkers, 64 F.3d at 31.5 Second, "this circuit and
others inquire into the intentions of the parties and the district
court judge, as evidenced by the record on appeal." García-Ayala,
212 F.3d at 644. Here, neither the parties nor the district court
exhibited the intent to have the district court resolve their
motions as a case stated. See id. at 644 n.4. Further, the
district court specifically stated the standard for summary
4 As discussed in Part II.B, infra, the parties do not
dispute that contract law applies to interpretation of the
condominium documents.
5 Deming demanded a "trial by jury on all issues," and
this demand "may be withdrawn only if the parties consent," Fed.
R. Civ. P. 38(d). Pacific said that it "would not and does not
consent to such a withdrawal," and Pacific is entitled to rely on
Deming's jury claim. See Lamex Foods, Inc. v. Audeliz Lebrón
Corp., 646 F.3d 100, 106 (1st Cir. 2011).
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judgment and said that in accordance with this standard, it would
view the record in the light most favorable to the non-moving
party.
Our review is de novo, "drawing all reasonable
inferences in favor of the non-moving party." Roman Catholic
Bishop of Springfield v. City of Springfield, 724 F.3d 78, 89 (1st
Cir. 2013). As we have repeatedly held, "[o]n an appeal from
cross-motions for summary judgment, the standard does not change;
we view each motion separately and draw all reasonable inferences
in favor of the respective non-moving party." Id.; see also United
Paperworkers, 64 F.3d at 31 n.2.
B. Paragraph 3.E of the Bylaws
"The general rule is well established that upon the
payment of a loss the insurer is entitled to be subrogated pro
tanto to any right of action which the insured may have against a
third person whose negligence or wrong caused the loss." New Eng.
Gas & Elec. Ass'n v. Ocean Accident & Guarantee Corp., 116 N.E.2d
671, 683 (Mass. 1953). Here, the Bylaws at Paragraph 3.E, set
forth in full earlier, provide that "[e]ach Unit Owner shall carry
insurance at his own expense for his own benefit insuring . . .
personal property owned by the Unit Owner," and that "all such
policies shall contain waivers of subrogation." Importantly, the
terms of this clause do not specify the scope of the subrogation
rights to be waived.
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Reading the document as a whole, we look to Paragraph
3.A.1 of the Bylaws, which appears in the same "Insurance" section
of the Bylaws as Paragraph 3.E. Paragraph 3.A.1 discusses the
scope of "waivers of subrogation" within the Trustees' insurance:
"The Trustees shall be required to obtain and maintain . . .
Property Insurance," and "[t]he Property Insurance shall, insofar
as practicable, contain waivers of subrogation as to any claim
against the Trustees, their agents and employees, Unit Owners,
their respective employees, agents and guests." (Emphasis added.)
Under its terms, it is clear that property insurance obtained by
the Trustees under Paragraph 3.A.1 need not waive the insurer's
right to subrogate claims against tenants.
The district court applied Massachusetts contract law to
interpret the condominium documents, and the parties do not dispute
that contract law applies to interpretation of the condominium
documents on appeal. See, e.g., Hancock v. Chambers, No. 13-P-
80, 2014 WL 959702, at *3 (Mass. App. Ct. Mar. 13, 2014) (applying
contract principles to interpret condominium documents); cf.
Mueller v. Zimmer, 124 P.3d 340, 359 (Wyo. 2005) ("Bylaws are
contractual in nature. . . . Unsurprisingly, bylaws are interpreted
according to the principles applicable to the interpretation of
contracts.").6 Under contract interpretation principles, the scope
6 The parties do not dispute that Massachusetts law
applies in this diversity case. See Servicios Comerciales Andinos,
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of "waivers of subrogation" provided in Paragraph 3.A.1 bears on
the interpretation of Paragraph 3.E. See J.A. Sullivan Corp. v.
Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986) ("[E]very phrase
and clause must be presumed to have been designedly employed, and
must be given meaning and effect, whenever practicable, when
construed with all the other phraseology contained in the
instrument, which must be considered as a workable and harmonious
means for carrying out and effectuating the intent of the parties."
(alteration in original) (quoting Charles I. Hosmer, Inc. v.
Commonwealth, 19 N.E.2d 800, 804 (Mass. 1939))); cf. Fay, Spofford
& Thorndike, Inc. v. Mass. Port Auth., 387 N.E.2d 206, 210 (Mass.
App. Ct. 1979) ("[W]hen an essential term of a contract is missing,
that contract is ambiguous and it falls to us to interpret the
contract sensibly in the light of the terms of the document taken
as a whole . . . .").
Here, the inclusion of a specific scope of "waivers of
subrogation" in Paragraph 3.A.1 juxtaposed with Paragraph 3.E's
mention of "waivers of subrogation" absent any defined scope lends
itself to at least three possible interpretations: (1) that
Paragraph 3.A.1 provides the outer limit of "waivers of
subrogation" in Paragraph 3.E, but that Paragraph 3.E may be less
inclusive than Paragraph 3.A.1; (2) that the scope of "waivers of
S.A. v. Gen. Elec. Del Caribe, Inc., 145 F.3d 463, 478 (1st Cir.
1998).
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subrogation" in Paragraph 3.E is the same as that of "waivers of
subrogation" in Paragraph 3.A.1; or (3) that "waivers of
subrogation" in Paragraph 3.E is not limited in scope the way
"waivers of subrogation" is in Paragraph 3.A.1, and so could apply
to claims against anyone. Pacific argues in favor of the first
approach. We think that the first or second approach provides a
better reading, as we do not understand the condominium documents
to suggest waivers of subrogation would waive claims against
anyone. The tenant is not a party to the agreement, and is not
named as a party in Paragraph 3.E. See Kaf-Kaf, Inc. v. Rodless
Decorations, Inc., 687 N.E.2d 1330, 1332–33 (N.Y. 1997) ("While
parties to an agreement may waive their insurer's right of
subrogation, a waiver of subrogation clause cannot be enforced
beyond the scope of the specific context in which it appears.").
Our reading is consistent with the holdings of two other
courts considering like issues, albeit not under Massachusetts
law. See Cmty. Ass'n Underwriters of Am., Inc. v. McGillick, No.
09-4891, 2010 WL 5467673, at *4–5 (D.N.J. Dec. 30, 2010)
(concluding that condominium bylaw provision requiring "[a]ll
policies of physical damage insurance shall contain waivers of
subrogation and of any reduction of pro-rata liability of the
insurer as a result of any insurance carried by Unit Owners" did
not "accrue to the benefit of tenants"); Schiller v. Cmty. Tech.,
Inc., 78 A.D.2d 762, 763–64 (N.Y. App. Div. 1980). And, as said
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in the second case, "[a]lthough the offering plan does not specify
to whom the waivers must extend, the reasons for waiving
subrogation rights only apply to potential claims against other
unit owners . . . . The goal is to insure and protect the
condominium owners, and that goal is satisfied without extending
the waiver of subrogation to negligent third parties." Id. at
763.
However, we need not resolve the question of Paragraph
3.E's scope nor look to extrinsic evidence because even if 3.E
were thought to apply to claims against tenants, it would
nonetheless be insufficient to effectuate a waiver of subrogation
for reasons we now proceed to discuss.7
C. Unit 1601's Waiver of Subrogation
Regardless of Paragraph 3.E's scope, nothing in the
record suggests that Unit 1601's owners actually waived their
insured's subrogation rights.
Specifically, Paragraph 3.E of the Bylaws requires unit
owners to procure insurance that contains "waivers of
subrogation." Pacific's policy includes that the insured "may
waive any rights of recovery from another person or organization
for a covered loss in writing before the loss occurs." (Emphasis
7 The parties also contest whether the Bylaws should be
treated as covenants that run with the land. We need not resolve
that issue for this same reason.
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added.) However, these two documents, even when read together, do
not amount to an actual waiver of subrogation. Pacific's policy
merely giving the insured the option to waive rights of recovery
cannot be read as a waiver of subrogation. And the only way to
understand Paragraph 3.E as constituting a waiver of subrogation,
as Deming does, is to read the requirement to purchase insurance
with a waiver of subrogation as itself being a waiver of
subrogation. But that reading is contrary to the plain text, and
we reject it.8 See Gen. Convention of New Jerusalem in the U.S.
of Am., Inc. v. MacKenzie, 874 N.E.2d 1084, 1087 (Mass. 2007)
("When the words of a contract are clear, they must be construed
in their usual and ordinary sense . . . .").
The district court found that unit owners "were
required, unconditionally, to obtain insurance with a waiver of
subrogation" and that if Pacific's "insured did not actually obtain
insurance with a waiver of subrogation, then at best, its insured
breached his or her obligation." Pac. Indem. Co., 140 F. Supp. 3d
at 160. Then, adopting the reasoning of a New York Supreme Court
case, Allstate Indem. Co. v. Virfra Holdings LLC, No. 155762/2012,
2013 N.Y. Misc. LEXIS 6878 (N.Y. Sup. Ct. July 3, 2013), the
8 We note that there may also be a question of whether
Pacific needs to be a party to any writing waiving subrogation.
See McGillick, 2010 WL 5467673, at *3. However, Pacific's argument
implies that it need not be a party to such an agreement so we do
not address the question here.
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district court held that "allowing Pacific to recover from another
Unit Owner (or in this case a tenant), because its insured breached
his or [her] obligation to obtain insurance containing a waiver of
subrogation, would frustrate the clear intent of the condominium
By-laws and allow Pacific to benefit from its insured's breach, an
untenable result," Pac. Indem. Co., 140 F. Supp. 3d at 161.
We disagree that such a result is "untenable" because it
is entirely consistent with the plain language of both the
insurance policy and the Bylaws. See Wickman v. Nw. Nat'l Ins.
Co., 908 F.2d 1077, 1084 (1st Cir. 1990) ("We are bound by this
plain language, and we may not distort it in an effort to achieve
a desirable or sympathetic result."); cf. MacKenzie, 874 N.E.2d at
1087 ("[W]e do not admit parol evidence to create an ambiguity
when the plain language is unambiguous."). Reaching the same
result under similar circumstances, the court in McGillick noted
that "while the [defendants] may counter-claim for breach of
contract, any alleged breach . . . in failing to waive subrogation
does not preclude Plaintiff's suit." 2010 WL 5467673, at *3.
And so, under the facts of this case, Pacific is not
subject to a waiver of subrogation and can pursue its claims
against Deming.
III.
For the reasons above, the order of the district court
is reversed, and the case is remanded.
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